A manufacturer engaged an independent contractor to improve the efficiency of certain machinery. After the task was completed, the contractor did the same for a competitor of the manufacturer. The manufacturer, claiming that the improvements were its trade secrets, sued the competitor in an Ohio state court for misappropriation. The case went to trial before a jury which returned a verdict of liability, answered special interrogatories consistent with that verdict, but awarded no damages. The trial judge entered judgment on the verdict and enjoined the competitor from using the trade secrets for five years unless the manufacturer was paid a specified royalty. On cross-appeals, the Ohio appellate court recently affirmed the judgment in all respects. Columbus Steel Castings Co. v. King Tool Co., 2013 Ohio 6826 (10th Appellate Dist. Court of Appeals, Dec. 30, 2011).
Columbus manufactures steel bolsters that support and stabilize railroad cars. In 2003, Columbus retained King Tool to build a new, more efficient machine. As a result, Columbus’ productivity increased three-fold. Then, Columbus’ competitor Alliance Castings retained King for the same purpose and achieved production six times its former output. Columbus, claiming that the improvements to its machine made it “unique as a whole” and afforded a competitive advantage, sued King and Alliance for misappropriation of trade secrets. The defendants sought and obtained summary judgment, but Columbus appealed. In 2008, the Ohio Court of Appeals identified genuine issues of material fact and, therefore, reversed and remanded for a trial.
Columbus settled with King and tried, to a jury, the dispute with Alliance. The jury returned a general verdict in favor of Columbus on liability but awarded no monetary relief. In answers to special interrogatories, the jury found that (a) the “machine made by King Tool for Columbus Steel was not generally known to, or readily ascertainable by proper means by, someone who might obtain economic value from its use,” (b) Columbus “made reasonable efforts to maintain the secrecy of the design of the” machine, (c) the design was a trade secret of Columbus, and (d) Alliance misappropriated Columbus’ trade secret. The trial court enjoined Alliance’s use of its new machine for five years but, as an alternative, established a royalty of $10.60 — approximately 1% of the average sales price — for Alliance to pay Columbus for each bolster manufactured on the machine during that period. Both parties appealed.
Columbus argued that the jury’s zero damages verdict resulted from misleading jury instructions. The Court of Appeals determined, however, that the instructions “as a whole” did not mislead “the jury in a manner affecting [Columbus’] substantial rights.”
Alliance maintained that the case should not have been submitted to the jury at all because there was no evidence to support Columbia’s claims that (a) the machinery design qualified as a trade secret, (b) Columbus took “reasonable steps to protect the secrecy of the design,” (c) Alliance misappropriated the design, and (d) “Alliance’s alleged misappropriation caused Columbus damage.” The appellate tribunal, reviewing de novo, rejected all of these contentions and affirmed the judgment in its entirety. The court held that it must affirm “if substantial evidence exists to support” the verdict and “reasonable minds could reach different conclusions on essential elements of the claim.” As to Alliance’s contentions:
1. Trade secret. The design qualified as a trade secret under the Ohio Uniform Trade Secrets Act, even though certain components “were readily ascertainable, because the machine as a whole was unique and afforded a competitive advantage to Columbus Steel.”
2. Protection of confidentiality. There was some evidence that Columbus had told King that the design was to be kept confidential and not shared with Columbus’ competitors. Further, Columbus “had security guards, fences, and locked entryways, and that the sketches and engineering drawings for the new machine were kept in a locked office.” Alliance claimed that the improvements were readily ascertainable by viewing the machine, but the appellate court pointed to evidence that Alliance’s representatives “obtained unauthorized access by means of false representation in order to view the new machine.”
3. Misappropriation. Alliance may have used improper means to acquire knowledge of the trade secrets. There was some evidence that an Alliance misrepresented to King that he was working for both Alliance and Columbus. The Court of Appeals said it was the province of the jury to determine whether there was a misrepresentation and whether Alliance had reason to know of it.
4. Damage. There was evidence from which a jury could have found that Columbus lost an indeterminate amount of profits due to misappropriation. In trade secret cases, “it is often difficult to prove money damages or lost profits” with certainty. The injunction provided “some relief for the misappropriation [because] the facts and circumstances of this case, particularly the zero damages verdict, lend themselves to a presumption of [irreparable] harm and a finding that money damages could not adequately compensate Columbus Steel.”
This decision provides insights with respect to proper jury instructions and special interrogatories in trade secret misappropriation cases. It shows that appellate courts will strive to reconcile all aspects of a jury’s verdict and a trial court’s judgment.